20/4/10 Rule Calculator

Formula

To calculate the Down Payment and Minimum Monthly Income:

\[ DP = CP \times 0.20 \] \[ MI = \frac{MC}{0.10} \]

Where:

$DP$ is the down payment (\$)
$MI$ is the minimum monthly income (\$)
$MC$ is the monthly car cost (\$)
$CP$ is the car price (\$)

What is the 20/4/10 Rule?

The 20/4/10 rule states that you should be able to afford a 20% down payment on a car, and the monthly cost should be less than 10% of your monthly income when a loan of 4 or fewer years is used. This rule helps in determining an affordable car purchase without stretching your finances too thin.

Example Calculation 1

Let's assume the following values:

Car Price ($CP$) = $25,000
Monthly Car Cost ($MC$) = $400

Using the formula:

\[ DP = 25,000 \times 0.20 = 5,000 \text{ dollars} \] \[ MI = \frac{400}{0.10} = 4,000 \text{ dollars} \]

The down payment is $5,000 and the minimum monthly income is $4,000.

Example Calculation 2

Let's assume the following values:

Car Price ($CP$) = $30,000
Monthly Car Cost ($MC$) = $500

Using the formula:

\[ DP = 30,000 \times 0.20 = 6,000 \text{ dollars} \] \[ MI = \frac{500}{0.10} = 5,000 \text{ dollars} \]

The down payment is $6,000 and the minimum monthly income is $5,000.